Kevin Buckland and Alan John
TOKYO/LONDON (Reuters) – The euro rose on Thursday after data showed euro zone business activity expanded at the fastest pace in a year this month, while sterling remained steady near a two-month high against the dollar, unfazed by monetary policy announcements and the British election.
Europe’s common currency rose after the currency bloc’s Composite Purchasing Managers’ Economic Index (provisional value) exceeded the 50 level, which is the dividing line between growth and contraction, for three consecutive months, and the struggling manufacturing industry also showed recovery. , rose 0.22% to $1.08450.
Mark Wall, chief European economist at Deutsche Bank, said of the data: “The dynamism in manufacturing is consistent with the view that external demand is currently driving positive momentum in the euro area.”
Better-than-feared economic data in recent months supported the euro’s gains in April and early May, with Thursday’s data pushing the euro to a two-month high of 1.0895, set in mid-May. Pushed back towards the dollar.
Another boost for the euro came from European Central Bank figures on Wednesday that showed the euro zone’s negotiated wage growth rate would rise slightly in the first quarter of 2024, likely prompting policymakers to be cautious about the path forward after next month’s almost certain interest rate cut.
The euro also rose 0.16 percent against the pound, recovering from a three-month low at the start of trading.
The pound was stable at 1.2725 against the dollar, barely budging after Chancellor Rishi Sunak called a national election on Wednesday that is widely expected to be defeated by the opposition Labour Party, which has been in power for 14 years. But volatility in pound options over the period covering the July 4 election has risen. [GBP/]
Jane Foley, head of FX strategy at Rabobank, said: “The market is pretty confident that there will be a Labour government and also pretty confident that in terms of fiscal policy, that Labour government will be not much different to the current combination of Sunak and Chancellor Hunt.”
Sterling hit a two-month high on Wednesday as Britain’s services inflation remained high, dashing expectations for a June interest rate cut by the Bank of England.
The dollar weakened slightly against the Japanese currency to 156.64 yen, which led to the dollar index (against the six major currencies) falling 0.15% to 104.7.
That marked a reversal after the index recorded its biggest daily gain this month on Wednesday as minutes from the last Fed meeting showed some officials were keen to raise rates.
PMI data also influenced the yen after data showed that Japanese factory activity expanded in May for the first time in a year.
Japan’s corporate sector has struggled with the weak yen, with a Reuters survey showing that almost half of Japanese companies believe the yen’s weakening, above 155 to the dollar, is having a negative impact on their business – roughly double the proportion of companies that see the yen’s weakness as a positive.
To counter the yen’s weakening, 37% of respondents wanted the central bank to raise interest rates again, while 34% wanted the government to intervene in the foreign exchange market.
The New Zealand dollar rose 0.47% to $0.6126 after data released on Thursday showed New Zealand retail sales unexpectedly increased. It rose for a second straight day after the Reserve Bank of New Zealand surprised markets on Wednesday by raising its interest rate peak forecast and delaying the timing of a planned rate cut. {AUD/]
Among cryptocurrencies, Ethereum rose 2% to $3,835, its highest level since mid-March.
Bitcoin is surging amid speculation that a spot exchange-traded fund tracking the world’s second-largest cryptocurrency may be approved in the United States.
(Editing by Kevin Buckland, Kim Cogill and Allison Williams)
